Will I Have to Pay Inheritance Tax?

When a person passes away, they typically provide a will that designates heirs of their property and assets. In some states, taxes are placed on the property beneficiaries inherit.

These states require an inheritance tax from heirs:

  • Iowa
  • Kentucky
  • Maryland
  • Nebraska
  • New Jersey
  • Pennsylvania

Keep in mind, just because you don't live in one of these states does not mean you won't be required to foot a tax bill. If a decedent lived in one of these states, or simply owned property there, the state will likely seek to collect taxes from your inheritance. For example, if you are currently living in Washington, but your grandfather's estate is being handled in his home state of Maryland, you may be required to pay inheritance taxes to the state.

There are some additional factors that will impact whether or not you have to pay inheritance tax, such as how closely related you were to the deceased, how much property you were left, and whether or not you are a charitable organization. Even children may be required to pay an inheritance tax in some states, though it may be a lower rate than other individuals.

It is important to note that if the state requires a tax return to be filed, only the executor will be responsible for this, even for multiple heirs. They will file just one document to cover all parties involved. In many cases, a probate case cannot be closed until beneficiaries pay this inheritance tax.

What about estate tax?

Even if you pay inheritance tax, you may still face additional taxes from the state if an estate value exceeds a certain amount. Estate tax is owed from the whole estate and will be due before property is even distributed. This still means a portion of your assets will be taken to pay these taxes.

These states still enforce their own estate tax:

  • Connecticut
  • Delaware
  • Hawaii
  • Illinois
  • Maine
  • Maryland
  • Massachusetts
  • Minnesota
  • New Jersey
  • Rhode Island
  • Tennessee (until January 1, 2016) Oregon
  • Vermont
  • Washington

For extremely large estates, such as those exceeding $5.43 million, federal estate tax may also be applied unless all the property is being passed to a surviving spouse.

Inheritance tax, however, does not depend on the amount and will be owed despite the value of property in some states. Typically, the less closely related you are to the decedent, the more tax you will owe.

Have more questions about taxes on estates? Reach out to one of the probate lawyers in our directory today.

Categories: Probate